Debunking the gas industry’s pitch

Marketing is a tough job, particularly when you’re trying to push something that most people don’t really want, say, for instance, a giant natural gas production platform stuck right in the middle of a neighborhood or next to a school or maybe even in someone’s backyard, provided the yard is big enough.

Faced with such a challenging sales task, it’s no wonder that oil and gas companies have been working overtime to try to create messaging that makes their unsightly, noisy, hydraulically fractured, somewhat toxic gas wells seem like a good idea, something that every neighborhood in every community should not only tolerate, but actually desire.

In order to accomplish this image transformation, the industry has relied on a couple of tried and true, focus-group-tested marketing techniques.

The first one draws an association between drilling wells and patriotism, as expressed in the industry’s “energy independence” argument. This pitch basically says that if we will allow the oil and gas industry to drill enough wells in our town, we can become safe from future terrorist attacks. The idea being that we are giving terrorists our money when we import petroleum products from the Middle East.

This marketing ploy worked pretty well for a time, but it has lost much of its credibility of late because people realize we don’t actually import natural gas and that the primary market for fracked shale gas going forward is as an export product. This exporting scenario renders the energy-independence claim mute as increasing gas exports will only lower our domestic supply while increasing the costs for natural gas here in the U.S. And just as a side note, the energy independence claim is similarly misleading when it comes to oil imports. Most of our imported oil comes from Canada, Mexico, Venezuela and Nigeria. Only about 12 percent of our oil comes from the Persian Gulf with two-thirds of that coming from our regional ally, Saudi Arabia.

So with the energy-independence argument being understood as largely fraudulent by many Americans, the oil and gas industry is now increasingly turning to its last and most powerful added-value pitch for why we should allow more drilling and fracking in our neighborhoods, namely jobs, jobs and more jobs.

This is a very strong marketing message anytime for any industry, but particularly so when jobs are scarce in a faltering economy as is the circumstance today.

The industry’s “jobs” messaging is also more powerful than its “energy independence” pitch because to a certain degree, the jobs argument is true. There is no denying that drilling and fracking creates jobs and high-paying jobs at that. But as with anything that sounds too good to be true, which the industry’s jobs claims most certainly do, a closer look is warranted.

One would think that determining how many jobs are actually created by increasing drilling activity would be a relatively simple task, but this is not the case. Quantifying jobs from any industry expansion is calculated by way of what is commonly referred to as a “jobs multiplier,” and that’s where things can get a little controversial.

The idea of the multiplier is that one set of new, “direct” industry specific jobs, the industrial process itself which may use products from other industries and the overall dollars being spent on an expansion, will all lead to the creation of many more “indirect” jobs than those actually related to the industry itself.

For example, if more wells are being drilled, then more jobs on drilling rigs will be created. Those are the obvious, “direct” new jobs. But it also follows that with more drilling, more truck drivers will be needed to service the pipe and fluid needs for those wells. And it is also assumed that with more chemicals being needed to frack those wells, more workers will be hired to manufacture those additional chemicals. As can be imagined, there is almost no end to this multiplier effect if a company or government is trying to give the impression that an industrial activity will create a high number of new jobs. The connections can be quite tenuous. Even additional employees that might be hired by environmental companies to clean up toxic spills from the drilling process can be counted as new jobs attributable to increased drilling activity. As a result of such contrived logic, industry job guesstimates can get out of hand pretty quickly.

The government is one of the major players in the job multiplier business. The U.S. Bureau of Economic Analysis maintains a list of government approved job multipliers calculated by industry. The bureau claims that for every job added in the coal-mining sector, for instance, an additional 4.4 “indirect” jobs are added in other, unrelated areas of business. For every job added in the tobacco industry, says the bureau, a whopping 5.5 unrelated jobs are created. Each new chemical industry job is multiplied at an astounding rate of 6.3 unrelated new jobs. But the very highest multiplier effect reported by the government goes to the oil and gas extraction industry. The bureau claims that no less than 6.9 new, “indirect” jobs are created for every added job associated with oil and gas development.

The previously mentioned industries were chosen as examples for a reason. The bureau keeps multiplier numbers for nearly every business sector from retail to agriculture to apparel manufacturing to construction. In virtually all sectors, a 1 to 2.5 jobs multiplier is used. Such moderate numbers are widely accepted as reasonable assumptions within the academic community. It is the loftier multiplier numbers associated with coal, tobacco, the chemical industry and oil that bring out the skeptics. More than one critic has pointed out that these extremely high multipliers have been assigned only to controversial and highly polluting industries, industries that might just need a strong value-added sales pitch when they come to town.

Recently the oil and gas industry went public with its job creation estimates for drilling 500 new shale gas wells a year in New York. The Public Policy Institute of New York State (PPINYS), which supports the proposed drilling activity, claims that by 2018, 62,620 new jobs will be created as a result of this additional drilling. Of this massive number, PPINYS estimates that 15,500 “direct” jobs would result from spending by gas companies. By the institute’s own estimate, only a small portion of what they are considering “direct” jobs would be in the oil and gas industry with most being in other sectors as a result of dollars spent in the area by the gas companies.

The remaining 47,120 new jobs that would supposedly be created by the drilling would be “indirect jobs” theoretically resulting from the multiplier effect. That is quite a sales pitch for a rural area of New York that has been hit hard by the great recession, but is it true?

The nonprofit group Food & Water Watch (FWW) has generated a report titled “Exposing the Oil and Gas Industry’s False Jobs Promise for Shale Gas Development: How Methodological Flaws Grossly Exaggerate Jobs Projections.” The research behind the report examined the PPINYS’s new job estimates. FWW’s work uncovered five major inaccuracies and methodological flaws within PPINYS’s calculations which, according to FWW, led to a major overestimate of potential new jobs from drilling.

Food & Water Watch found that, “the economic forecasting model PPINYS relied on only supports a claim of 6,656 New York jobs by 2018, under the PPINYS scenario of drilling and fracking 500 new shale gas wells every year.”

In other words, FWW found that the PPINYS’s new jobs claim was inflated nearly 10-fold. The FWW report went on to note that even the corrected 6,656 new jobs number was still too high because it did not take into account the economic and job losses that would occur in the agricultural and tourism sectors as a result of the drilling.

Closer to home, Gov. John Hickenlooper has often touted the oil and gas industry’s importance to the state’s economy in terms of dollars, jobs and new job creation as the primary reason for his unbridled industry support. But just how big a piece of Colorado’s economic pie is oil and gas, really?

A recent report titled “Spend, Baby, Spend; How Oil and Gas Controls Colorado” which was created by Ethics Watch, a nonprofit organization that tracks the influence of money and lobbying on government, found that the industry is far more influential than its actual importance to the Colorado economy can justify.

According to the report, “Colorado’s oil and gas industry has been called ‘the state’s most powerful’ and few would disagree. The industry has long presented itself as a key job creator and driver of Colorado’s economy. Certainly, the industry has benefited from regulations that are looser than even some historically friendly states like Texas and Pennsylvania. As it turns out, however, oil and gas development is a smaller portion of the state’s economy than most Coloradans would likely expect, given the industry’s power in Colorado political and policy-making arenas. This disparity may be explained by the industry’s robust and effective spending on elections and lobbying.”

The report further notes, “the United States Department of Commerce’s Bureau of Economic Analysis (BEA) show that as of 2010 (the last year for which complete statistics are available) the oil and gas industry in Colorado accounted for only 2.25 percent of the state’s gross domestic product (GDP) and just less than 1 percent of the state’s jobs. This means that oil and gas extraction is not close to being a top industry in Colorado either measured as a percentage of state GDP or in terms of number of jobs created.”

As a matter of comparison, it should be noted that when industry critics have pointed out that the hydraulic fracturing process being used in shale oil and gas development may be using as much as 1 percent of Colorado’s available water supply, the industry and Hickenlooper administration have responded that 1 percent is statistically insignificant. One would think that this same statistical insignifi cance would apply to something that accounted for less than 1 percent of the state’s overall jobs as well.

Also of importance is the fact that many, if not most, of Colorado’s oil and gas sector jobs have nothing to do with increased oil and gas drilling in Colorado. Most of the industry’s highest-paying jobs are the result of oil and gas companies headquartered in Denver whose petroleum reserves and exploration activities are taking place in many parts of the country and even around the world. The vast majority of these jobs would remain in Colorado if all new drilling in the state were to stop tomorrow. Drilling itself is really a very insignificant job generator.

In North Dakota, where an unprecedented drilling boom is occurring, the active rig count (the number of rigs drilling wells on any given day) was 176 in February of this year. In Colorado the active rig count was 55 that same month. According to a North Dakota economic report from March, that state has added just under 1,000 jobs in the oil and gas drilling sector since 2005. From that we can estimate that Colorado has added far less than 1,000 drilling jobs.

What all this means is that it is very difficult to estimate the real new jobs impact that the oil and gas industry could have in Colorado even if it were allowed to drill in Boulder and Larimer counties and elsewhere without further restrictions. While there is certainly a job multiplier effect from oil and gas drilling and spending, it is likely nowhere near as high as the industry and Hickenlooper administration have been touting.

Considering that most oil and gas industry jobs in Colorado are not directly tied to drilling in Colorado, and that the entire industry currently accounts for less than 1 percent of jobs in the state, it should be safe to say that whatever the number of new jobs created as a result of increased drilling activity might be, that number will be statistically insignificant to the state’s overall labor force.

The decision to allow or not allow drilling in specific areas such as within city limits or even within entire counties, should be made based upon the desires and concerns of those living within these areas in question. The oil and gas industry’s arguments for allowing more drilling in order to either achieve energy independence or significant job creation have been exaggerated well beyond their actual merit.